Spain–Reform of the Spanish tax system: Principal measures
29 December 2014
Included here are some brief highlights on the most significant new features of Law 26/2014, of 27 November, amending Personal Income Tax Law 35/2006, of 28 November, the Consolidated Non-Resident Income Tax Law, approved by Legislative Royal Decree 5/2004, of 5 March, and other tax provisions (“Law 26/2014”). Changes are effective from 1st January 2015, except for specific provisions stated in the law.
Personal income tax
A new limit is introduced to exempt tax severance payments made under Spanish Labor Law amounting to EUR 180,000. This change is effective for dismissals that occur after 1st August 2014 with certain exceptions.
Reduction applicable to non-regular income (that generated over a period of two years or included as such on Spanish Income Tax Regulations) is reduced from 40% to 30% to calculate the amount subject to taxation in Spain. This 30% reduction will be applicable only when the individual has not applied such reduction to other non-regular income (excluding severance payments and stock options granted prior to 1st January 2015 under certain conditions) in the previous five years.
A new investment product is created called “Planes de Ahorro a Largo Plazo” (long-term savings plans) with a special regime on the tax treatment of income from movable capital obtained. These plans must meet special requirements that are regulated in the law.
An exit tax has been introduced for unrealized capital gains due to the ownership of shares or other equity interests, which is applicable to Spanish tax resident individuals who change their tax residence status. This exit tax will be only applicable to individuals who have been considered Spanish tax residents during at least 10 of the last 15 years and when any of the following circumstances exists:
- Market value of the shares or equity interests exceeds EUR 4,000,000; or
- Market value of the shares or equity interests exceeds EUR 1,000,000, and the ownership percentage exceeds 25%
The portion of deliveries to employees of shares or other equity interests of the company itself or of other companies in its group that does not exceed an annual amount of EUR 12,000 for the total deliveries to each employee continues to be tax exempt, provided that the shares or other equity interests are offered under the same terms and conditions to all the employees of the company, group, or subgroup.
The treatment of capital reductions with reimbursement of contributions and distribution of share premium at unlisted companies is modified, and now the dividend payments made after such transactions that were taxed as income from movable capital will be deducted from the acquisition cost of the securities.
The abatement coefficients applicable to capital gains arising from the transfer of assets acquired before 31 December 1994 continue to apply where the aggregate sum of the asset transfer values is below EUR 400,000. The same is established for transfers of life insurance contracts that generate capital gains or losses prior to 1 January 1999.
From 1 January 2017 onward, amounts obtained from the transfer of subscription rights relating to listed securities will be considered to be capital gains.
There are now more cases in which a taxpayer may apply for a deferral of his tax debt relating to capital gains as a result of a change of residence; this is possible not only when the relocation is for work reasons but also when the relocation is to a country with which Spain has a tax treaty containing an exchange of tax information clause.
It will be possible to draw early, from 1 January 2025, on the amount of the vested rights under corporate and individual employee welfare systems (i.e., pension plans, employee mutual funds, insured provident plans, and corporate employee welfare plans) corresponding to contributions made up to 31 December 2015 that were made at least 10 years earlier.
For benefits under group life insurance policies instrumenting pension obligations subscribed before 20 January 2006, and for those under pension plans, employee mutual funds, and insured provident plans, on the portion corresponding to contributions made prior to 31 December 2006, the reduction provided for in the Law for benefits received in the form of capital will apply on the basis of the following time schedule:
- Eventualities occurring from 2015 onward: when the benefit is received in the year in which the eventuality occurs and in the following two years.
- Eventualities occurring between 2011 and 2014: when the benefit is received in the eight years following that in which the eventuality occurs.
- Eventualities occurring in 2010 and prior years: when the benefit is received prior to 31 December 2018.
Withholding tax rates applicable to employment income have dropped down. A progressive tax scale applies and maximum marginal tax rate has been reduced from 52% to 47% (45% applicable from 1st January 2016). Final tax rates can differ depending on the region the individual is tax resident in.
Withholding tax rate applicable to income from professional activities and to salary income derived from giving courses, conferences, symposiums, seminars, or similar, or those derived from the preparation of literary, artistic, or scientific works, where the exploitation rights are licensed out, will be 19% (18% from 1st January 2016).
Tax rates applicable to savings income, such as interest, dividends, and capital gains derived from the sale of assets, have been also reduced. Tax rate will be 20% for income up to EUR 6,000, 22% for income between EUR 6,000 and EUR 50,000, and 24% for income above EUR 50,000 (19%, 21%, and 23% from 1st January 2016)
Spanish Special Tax Regime applicable to inbound assignees – This special tax regime has suffered significant amendments, which will be applicable from 1st January 2015. In general terms, changes affect the requirements to be eligible for the special tax regime and also to income subject to Spanish taxation and to applicable tax rates.
Non-resident income tax
The most significant of the amendments introduced during the parliamentary approval phase arose from an amendment tabled by the Popular Parliamentary Group in the Senate with, according to the text itself, a twofold objective: i) to equate the treatment of capital gains obtained by Spanish residents and those obtained by residents of other European Union (EU) Member States (Art. 14.1.c) of the Non-Resident Income Tax Law) and ii) clarify that the dividend exemption anti-abuse clause (Art. 14.1.h) of the Non-Resident Income Tax Law) will not apply to parent companies resident in European Economic Area Member States with which there is an effective exchange of tax information.
In order to achieve the first objective, the exemption provided for in the new Income Tax Law (Art. 21) is extended to entities resident in the EU, attempting to thus obviate the infringement of EU law. However, the treatment is not 100% equal since cases in which the assets of the Spanish entity consist mainly, directly or indirectly, of real estate located in Spain are excluded from the exemption.
Other amendments applicable to non-tax resident individuals are the following:
- Spanish tax exemption on the capital gain obtained due to the sale of the habitual residence when the sale price is reinvested in the acquisition of a new habitual residence is now applicable to Spanish non-tax resident individuals when these are resident in a European Union country or European Economic Area Member State with which there is an effective exchange of tax information.
- Taxpayers are now able to request draft tax returns from the tax authorities for taxable income from real property.
- The procedure has been specified for the regularization of tax debts arising from foreign-source pensions and the forgiveness of penalties, surcharges, and interest.
- Tax rates applicable to non-tax residents individuals decrease from 24.75% to 24% (20% for EU resident individuals or individuals resident in an European Economic Area Member State with which there is an effective exchange of tax information and 19% from 1st January 2016).
- Tax rate applicable to dividends, interests, and capital gains will be 20% for 2015 and 19% for 2016.
Inheritance and gift tax
As a result of the Court of Justice of the European Union Ruling of 3 September 2014, new criteria were introduced for determining the autonomous community law applicable to cases in which, according to the Court, there is discrimination between Spanish residents and residents in other EU or European Economic Area Member States.
Spanish Wealth Tax Law has been amended to introduce certain rules that make it possible to treat Spanish residents and non-residents in Spain who are residents of the European Union or the European Economic Area in a similar fashion.
As a general view, these tax changes pursue a reduction of the tax burden for those individuals with fewer resources or higher family burden, as well as a stimulus to generate long-term savings and elimination of certain tax incentives.
With regard to international mobile population, there are important changes affecting the Spanish Special Tax Regime as well to tax rates applicable to non-tax resident individuals and those EU resident individuals or individuals resident in a European Economic Area Member State with which there is an effective exchange of tax information. Therefore, with these amendments, concluding on an individual’s tax residence status can be a point of tax planning opportunities in Spain as differences in the tax burden can be very significant.
If you have any questions concerning the issues in this GES NewsFlash, please contact a GES professional at our Deloitte offices as follows:
Victoria de las Heras
Elisa Martin del Yerro
Pablo Alvarez Arranz
Be sure to visit us at our website: www.deloitte.com/tax.